Thomas J. Sudyka, Jr. is portfolio manager at Lawson Kroeker Investment Management, Omaha, which manages $435 million, and co-portfolio manager of the $28 million LK Balanced Fund (LKBLX). LKFunds.com
This week’s Stock of the Week is set to take advantage of a growing demand for its product.
Constellium N.V. (CSTM) designs and manufactures specialty aluminum products. It gets 54% of revenue from packaging—largely aluminum cans. But its opportunity is not in that slow-growth business. Nor is it in aerospace—25% of revenue—where Constellium is the No. 1 worldwide maker of wing skins for Boeing, Airbus and other manufacturers. The big growth opportunity is in automobiles, now 21% of revenue and rising.
Although Audi and some other manufacturers have used large amounts of aluminum in cars for years and Ford recently introduced it in the F150 pickup truck, demand is only now growing across the industry. Adoption is being temporarily held back by lower gas prices, which reduce the impetus for lighter-weight cars and trucks. Nevertheless, the use of structural aluminum in transportation is growing so quickly that even if car sales fall, Constellium’s sector revenue should rise as the percentage of aluminum in each vehicle increases. Also, the US tariff on imported aluminum, introduced earlier this year, has not had the disruptive effect that many had feared.
Constellium also is in turnaround mode after the Netherlands-based company overpaid for a US plant in Alabama and ended up with a loss for 2017 and $2 billion in debt. It paid that down by $300 million last year and continues repaying it aggressively. Constellium’s revenue was $6.1 billion last year and is likely to be $6.5 billion this year and $6.8 billion in 2019—although currency conversion from the euro, in which it reports, may affect dollar amounts.
Fiscal year: December. Earnings per share: 2019 est./$1.10…2018 est./$0.60…2017/–$0.33.
Thomas J. Sudyka, Jr., is portfolio manager at Lawson Kroeker Investment Management, Omaha, which manages $430 million, and co-portfolio manager of the $28 million LK Balanced Fund (LKBLX). LKFunds.com